Correlation Between Penyao Environmental and Nanxing Furniture

Can any of the company-specific risk be diversified away by investing in both Penyao Environmental and Nanxing Furniture at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Penyao Environmental and Nanxing Furniture into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Penyao Environmental Protection and Nanxing Furniture Machinery, you can compare the effects of market volatilities on Penyao Environmental and Nanxing Furniture and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Penyao Environmental with a short position of Nanxing Furniture. Check out your portfolio center. Please also check ongoing floating volatility patterns of Penyao Environmental and Nanxing Furniture.

Diversification Opportunities for Penyao Environmental and Nanxing Furniture

0.56

Correlation Coefficient

Penyao Environmental  Nanxing Furniture

Very weak diversification

The 3 months correlation between Penyao and Nanxing is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Penyao Environmental Protectio and Nanxing Furniture Machinery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nanxing Furniture and Penyao Environmental is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Penyao Environmental Protection are associated (or correlated) with Nanxing Furniture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nanxing Furniture has no effect on the direction of Penyao Environmental i.e., Penyao Environmental and Nanxing Furniture go up and down completely randomly.

Pair Corralation between Penyao Environmental and Nanxing Furniture

Assuming the 90 days trading horizon Penyao Environmental Protection is expected to under-perform the Nanxing Furniture. But the stock apears to be less risky and, when comparing its historical volatility, Penyao Environmental Protection is 1.07 times less risky than Nanxing Furniture. The stock trades about -0.15 of its potential returns per unit of risk. The Nanxing Furniture Machinery is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  1,629  in Nanxing Furniture Machinery on October 10, 2024 and sell it today you would lose (165.00) from holding Nanxing Furniture Machinery or give up 10.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Penyao Environmental Protectio  vs.  Nanxing Furniture Machinery

Penyao Environmental

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Penyao Environmental Protection are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Penyao Environmental may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Nanxing Furniture

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Nanxing Furniture Machinery are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Nanxing Furniture sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Penyao Environmental and Nanxing Furniture

The main advantage of trading using opposite Penyao Environmental and Nanxing Furniture positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Penyao Environmental position performs unexpectedly, Nanxing Furniture can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Nanxing Furniture will offset losses from the drop in Nanxing Furniture's long position.

The idea behind Penyao Environmental Protection and Nanxing Furniture Machinery pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .